The UK will overtake Germany as Europe's largest market for information and communication technology in 2005, according to a new study from Forrester Research.
The analyst group predicts that the UK's ICT market will have grown to 138.2bn euros by 2005, compared to 133bn euros in 2002. In contrast, Forrester believes that the German ICT market will be worth 138.1bn euros in 2005, and will actually fall to 136bn euros this year compared to 138bn euros in 2002.
The key factor, according to Forrester, is that business confidence is expected to remain particularly low in Germany over the next few years, which will have a knock-on effect on spending on ICT products and services.
"Business sentiment in Germany is so negative, and will remain so, that people will think they need to save money by cutting back on their ICT spending," Charles Homs, senior analyst at Forrester Reseach, told ZDNet UK on Monday.
Forrester predicts the UK's software market will overtake Germany's this year, as did its IT services market in 2001. Germany is expected to still be spending more than the UK on both hardware and telecommunications services by 2007 -- the limit of Forrester's projections at this time -- though.
According to Homs, many German companies will cut back on their spending on new IT projects, and concentrate just on maintaining existing systems.
"If you ask an IT manager what would happen if you cut his annual budget by 20 percent, he'll say 'nothing' because you can always postpone a project until a later stage," said Homs, adding that on average 66 percent of IT budgets are spent on existing systems, with the remaining 34 percent devoted to new projects.
This means that most companies have the flexibility to postpone investment in new ICT products and services in the short term.
Homs warns, though, that this can have negative long-term consequences of a firm's productivity.
"Companies who compete in a multinational environment will find that if they keep postponing new IT projects then eventually their competitors will start to outperform them," cautioned Homs.
Forrester also warns that the tech spending gap between Europe as a whole and the US will widen by 4.3 percent, or 62bn euros, this year, and that the technology boom enjoyed by Ireland in recent years is coming to a close.
"Forrester believes that in light of the current economic conditions and next year's EU expansion, subsidies and tax incentives [for Ireland] will be a thing of the past," said the analyst firm, adding that, "with wages rising to commonplace Northwestern European levels, Ireland's magnetism for ICT companies will quickly fade."